Best’s News & Research Service - June 13, 2023 01:45 PM (EDT)
AM Best Revises Outlooks to Stable, Affirms Credit Ratings of Reunion Re Compañia de Reaseguros S.A.
- June 13, 2023 01:45 PM (EDT)
Mexico City //BestWire// - AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Reunion Re Compañia de Reaseguros S.A. (Reunion Re) (Argentina).
These Credit Ratings (ratings) reflect Reunion Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The revision of the outlooks to stable from negative reflects AM Best´s view of Reunion Re´s balance sheet strength being at the very strong level, despite consistent pressure driven from Argentina´s challenging macroeconomic environment, including sovereign rating deterioration and volatility in the company´s retrocession leverage stemming from reinsurance recoverables and ceded premium.
Reunion Re’s balance sheet strength remains underpinned by its risk-adjusted capitalization being at the strongest level, as measured by Best´s Capital Adequacy Ratio (BCAR). The ratings also reflect the company’s consistent profitability despite a volatile economic environment. Other positive rating factors include a well-structured and diversified reinsurance program, the company’s seasoned management team and synergies provided by its main shareholder. Partially offsetting these positive rating factors is the historic volatility in Reunion Re’s bottom line results derived from operating in an economy with high inflation and currency volatility, its exposure to capital controls, public debt restructuring and past uncertainty from the COVID-19 global pandemic.
Reunion Re initiated operations in Bueno Aires, Argentina in 2012, and ranks among the country’s top reinsurance companies in terms of premium market share. The company operates through a network of brokers and direct distribution channels in Argentina, Paraguay, Guatemala, Bolivia, Ecuador, Honduras and El Salvador.
Historically, the company has increased capital at a 56% compound annual growth rate supported by positive bottom-line results; this is driven by a consistent inflow of underwriting and investment income, which reflects the management team’s market knowledge and well-rounded experience in Argentina. A well-balanced reinsurance program placed among counterparties with a strong credit quality level also reinforces the company’s risk-adjusted capitalization and diminishes its credit risk exposure. In AM Best´s view, current capital levels are pressured by the credit quality of Reunion Re´s investment portfolio given the prevailing macroeconomic uncertainty in Argentina. In addition, spikes in the volume of reinsurance recoverables and ceded premium also pressure the company’s capital adequacy, which underly its current ratings.
In AM Best’s view, the reinsurer has shown disciplined underwriting in a highly volatile market that is driven by inflation and foreign exchange rate pressures. Historically, Reunion Re has managed to maintain overall profitability despite the negative effects derived from non-recurring adjustments in premium reporting, capital controls and public debt restructuring. By year-end 2022, the company reported negative bottom line results mainly driven by investment losses impacting the overall insurance industry and resulting from the spread between high inflation and currency devaluation rates. Nonetheless, Reunion Re was able to maintain underwriting profits as reflected by a 93.5% combined ratio during 2022. AM Best expects improvements in financial products as Argentina’s central bank (BCRA) accelerates the peso’s devaluation and the company reconfigures its portfolio.
Factors that could lead to negative rating actions include a deterioration in its risk-adjusted capitalization to a level that no longer supports the ratings in light of current macroeconomic risks, which could pressure AM Best’s view of Reunion Re’s balance sheet strength level. Additionally, aggressive premium growth resulting from the company’s geographic expansion that pressures capital to a level that no longer supports the ratings also lead to negative rating actions.
The methodology used in determining these ratings is Best’s Credit Rating Methodology (Version Nov. 13, 2020), which provides a comprehensive explanation of AM Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Available Capital & Holding Company Analysis (Version Oct. 13, 2017)
- Catastrophe Analysis in AM Best Ratings (Version March 10, 2023)
- Evaluating Country Risk (Version May 4, 2023)
- Scoring and Assessing Innovation (Feb. 27, 2023)
- Understanding Global BCAR (Version June 30, 2022)
View a general description of the policies and procedures used to determine credit ratings. For information on the meaning of ratings, structure, voting and the committee process for determining the ratings and monitoring activities, please refer to Guide to Best’s Credit Ratings.
- Previous Rating Date: May 12, 2022
- Date Range of Financial Data Used: Jun. 30, 2017-March 31, 2023
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